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Rating Action:

Moody's upgraded FCA to Ba2; stable outlook

06 Mar 2018

Frankfurt am Main, March 06, 2018 -- Moody's Investors Service, ("Moody's") has today upgraded to Ba2 from Ba3 the corporate family rating (CFR) and to Ba2-PD from Ba3-PD the probability of default rating (PDR) of Fiat Chrysler Automobiles N.V. (FCA). Concurrently, Moody's has upgraded to Ba3 from B1 FCA's senior unsecured notes rating and to Baa2 from Baa3 the rating of the senior secured term loan B issued by FCA US LLC, a subsidiary of FCA. The outlook on all ratings has been changed to stable from positive.

"FCA's upgrade reflects the significant improvements in its credit metrics over the past three years especially the reduction of its financial leverage," said Falk Frey, a Senior Vice President and lead analyst for FCA. "We anticipate a continued strong operating performance in the current year, based on a number of high margin product renewals in the SUV- and pick-up segment," Frey added.

A full list of affected entities and ratings can be found at the end of this press release.

RATINGS RATIONALE

In 2017 FCA's worldwide combined shipments (including shipments from unconsolidated joint ventures) of 4.7 million units were basically unchanged compared to the previous year resulting in net revenues of EUR111 billion (2016: EUR111 billion). An improved product mix was the main driver of a 16% increase in the reported adjusted EBIT of EUR7.1 billion. All regions and divisions reported an improvement in its adjusted EBIT and margin.

These reported numbers resulted in an EBITA margin improvement to 5.5% (as adjusted by Moody's) from 3.9% in 2016, free cash flow generation (as adjusted by Moody's) of EUR1.1 billion (2016: EUR1.8 billion), a reduction in gross debt to EUR24.4 billion (as adjusted by Moody's) from 30.4 billion in 2016 and a reduced leverage (Moody's adjusted debt/EBITDA) of 2.4x compared with 3.5x in 2016.

For 2018 Moody's anticipates FCA's operating performance and cash flow generation to continue to improve driven by successful new product launches in high margin SUV and pick-up segments like the Jeep Cherokee and Jeep Wrangler as well as the Ram 1500 pickup, despite the slight decline in US light vehicles demand that Moody's anticipates in 2018 (-2%) as well as the continued ramp-up of the all-new Jeep Compass following completion of its worldwide roll-out in 2017.

FCA's rating is constrained by a significant dependency on operating performance from its business in the US, with a strong reliance on performance of the Jeep and Ram models. Given the strong market dynamics there, FCA's numbers are reflective of a cyclical industry that has reached a peak, even though we do not expect a severe decline for the current year. However, a weaker market environment in the US could have adverse effects on FCA's performance and, hence, leverage. In addition, FCA together with all other automotive OEMs is exposed to the transition risks of the industry towards alternative fuel vehicles, and autonomous driving technologies, which will weigh negatively on future cash flow generation.

FCA is subject to emissions investigations in Europe and most notably in the US. In January 2017, the U.S. Environmental Protection Agency ("EPA") accused FCA of violating the US Clean Air Act, alleging that FCA US LLC (FCA US) failed to disclose certain emissions control strategies. While discussions on possible penalties seem premature, the US Clean Air Act provides for theoretical fines of up to USD4.6 billion (does not include possible fines imposed by other authorities or civil damages). Moody's believes that a mid-single digit billion Euro amount of one-time expenses could be compensated within the Ba2 rating.

LIQUIDITY

As of 31 December 2017, FCA's liquidity profile is considered good, underpinned by EUR12.8 billion in reported cash and marketable securities as well as access to undrawn EUR7.6 billion committed revolving credit facilities (RCFs). The RCFs have been upsized by EUR1.25 billion in March 2017 and its maturities have been extended, with EUR3.1 billion maturing in April 2020 (with two 1-year extension options available) and EUR3.1 billion in March 2022. These funding sources should cover FCA's anticipated cash requirements over the next 12 months, which comprise principally capex, debt maturities (EUR6.9 billion in 2018), cash for day-to-day needs and a modest amount of dividends paid to non-controlling interests.

RATING OUTLOOK

The stable outlook is based on our expectation that FCA's operating performance and cash flow generation will continue to improve in 2018 driven by successful new product launches in high margin SUV and pick-up segments like the Jeep Cherokee and Jeep Wrangler as well as the Ram 1500 pickup, despite the slight decline in US light vehicles demand that Moody's anticipates in 2018 (-2%) as well as the continued ramp-up of the all-new Jeep Compass following completion of its worldwide roll-out in 2017. This should translate into credit metrics that position it comfortably in the current rating category e.g. Moody's-adjusted (gross) debt/EBITDA around 2.0x and a positive free cash flow exceeding EUR2.0 billion.

The stable outlook further reflects Moody's expectation that FCA's business setup has the capacity to contend with the long-term cyclicality within the global passenger vehicle markets and its challenging landscape as a result of heavy investment requirements for (1) alternative propulsion technologies; (2) driverless vehicles; (3) the shift of production capacities towards alternative fuel vehicles; (4) connectivity as well as (5) regulations relating to vehicle safety, emissions and fuel economy.

WHAT COULD CHANGE THE RATINGS UP/DOWN

FCA's ratings might come under downward pressure should FCA's operating performance and cash flow generation come under significant pressure as a result of market share declines or if market conditions were to weaken in the US and in Europe or material fines would hurt the company's brand image.

A downgrade could occur in case these events would result in the following credit metrics for a sustained period of time: (1) a Moody's-adjusted EBITA margin falling below 4%, (2) a sizable negative free cash flow, or (3) a Moody's-adjusted (gross) debt/EBITDA exceeding 3.5x.

Qualitatively, upward pressure on FCAs rating could materialize if the company is able to demonstrate a product breadth and improved market position which is more in line relative to its Baa3 rated peers as well as sustainability in its current operating profitability and cash flow generation, even if market conditions were to weaken in the US and in Europe. An upgrade of FCAs rating would also hinge on the company's ability to resolve the current legal investigations in the US and Europe surrounding the diesel emissions issues, without a material impact on the company's credit metrics, and without a serious impact on its reputation, as evidenced by a loss of market share.

Quantitatively, an upgrade could occur if FCA were able to achieve (1) a Moody's-adjusted EBITA margin around 6%, (2) a consistently positive and robust free cash flow without compromising on its capital expenditures and R&D expenses needed to achieve emission targets, to manage the transition to alternative fuel vehicles and new drivetrain technologies as well as autonomous vehicles, (3) a reduction in leverage based on Moody's-adjusted (gross) debt/EBITDA sustainably below 2.0x.

STRUCTURAL CONSIDERATIONS

We have considered the senior unsecured notes issued by FCA and its treasury companies as structurally subordinated to a significant portion of financial and non-financial debt (including the remaining USD1.0 billion senior secured term loan B at FCA US), located at the level of FCA's operating subsidiaries largely consisting of trade payables. Consequently, the ratings of FCA's outstanding senior unsecured bonds is Ba3, or one notch below the Ba2 CFR, according to Moody's Loss Given Default Methodology, and the rating assigned to FCA US's secured term loan B is Baa2.

LIST OF AFFECTED RATINGS

Issuer: Fiat Chrysler Automobiles N.V.

..Upgrades:

....LT Corporate Family Rating, upgraded to Ba2 from Ba3

....Probability of Default Rating, upgraded to Ba2-PD from Ba3-PD

....Senior Unsecured Regular Bond/Debenture, upgraded to Ba3 from B1

....Senior Unsecured Shelf, upgraded to (P)Ba3 from (P)B1

....Senior Unsecured Medium-Term Note Program, upgraded to (P)Ba3 from (P)B1

..Affirmation:

....Other Short Term, affirmed (P)NP

..Outlook Action:

....Outlook changed to Stable from Positive

Issuer: FCA US LLC

..Upgrades:

....Senior Secured Bank Credit Facility, upgraded to Baa2 from Baa3

..Outlook Action:

....Outlook changed to Stable from Positive

Issuer: Fiat Chrysler Finance Europe SA

..Upgrades:

....Backed Senior Unsecured Regular Bond/Debenture, upgraded to Ba3 from B1

....Backed Senior Unsecured Medium-Term Note Program, upgraded to (P)Ba3 from (P)B1

..Affirmation:

....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)NP

..Outlook Action:

....Outlook changed to Stable from Positive

The principal methodology used in these ratings was Automobile Manufacturer Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Having its corporate seat in Amsterdam, the Netherlands, and the place of effective management in the United Kingdom, FCA is one of the world's largest automotive manufacturers by unit sales. Its portfolio of brands includes Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Ram, Maserati and Mopar, the parts and service brand. In 2017 FCA generated consolidated net revenues of EUR111 billion and reported an adjusted EBIT of EUR7.1 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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